How to Uncover a Firm’s Culture in a Time of Virtual Due Diligence and Beyond

11 questions advisors can ask to unlock what is often an intangible yet important aspect of an advisor’s assessment of a firm.

The search for a “better culture” has emerged in recent years as one of the single greatest drivers of advisor movement. Yet the term “culture” itself can evade simple definition.

Culture can encompass an organization’s system of values and priorities, and influence every decision. It’s the undercurrent that directs, either subtly or overtly, the choices made and the paths taken. While a firm may endeavor to articulate it’s intended culture, it’s more often “in the eye of the beholder”—that is, how an individual experiences it, through the organization’s actions rather than words.

But how does an advisor actually “experience” a firm’s culture—particularly during a time when due diligence is primarily virtual? And likewise, how does a firm demonstrate its culture and avoid relying upon platitudes?

It once may have been assumed that just by spending enough time engaged with a management team, a firm’s culture would be revealed. While it can be debated if this alone could ever be relied on, Covid-19 has certainly necessitated a change in the nature of the due diligence process.

If the role culture plays in an advisor’s assessment of any opportunity is so significant, there needs to be a way to convert what is inherently subjective and amorphous into a more objective and concrete thought process. Advisors we’ve counseled have found that answering these 11 fundamental questions as part of performing due diligence can help create a more accurate picture of a firm’s culture:

1. Who owns the client?

When a firm sees the advisor as the client of the firm, and the end client as belonging to the advisor, this influences every aspect of a firm’s relationship with its advisors. Restrictions in employment agreements that limit an advisor’s ability to bring his clients with him if he were to leave are fairly standard in the industry. However, the Protocol for Broker Recruiting has gone a long way in easing these restrictions for advisors employed by participating firms.

2. Are there limitations on client selection?

It’s important to understand any restrictions a firm may impose in terms of client service. For example, is an advisor free to work with any client? What is the process for getting approvals on new accounts? Does the firm have minimums that prevent an advisor from being paid on or working with clients below a certain account size? Is the advisor limited in discounting fees? What is the process for getting exceptions on these policies?

3. What is the ownership structure of the firm?

The nature of the parent company can have a huge impact on the wealth management firm, and its identity, as for example, a bank, insurance company or private equity firm can have implications. How meaningful is wealth management to the parent? What advantages, opportunities or limitations are attributable to the parent?

4. Is there access to senior leaders?

The ability to engage with the firm’s leadership can indicate an absence of bureaucracy and the potential for greater advisor involvement in setting policy. For instance, do advisors have an opportunity to give and receive timely input from management? Do advisors have a voice in the direction of the firm and decisions that impact them such as investment in resources like technology? How many layers of management are there? Does local management have authority and autonomy to make meaningful decisions? And importantly, do managers advocate for the advisors?

5. Is there stability and transparency when it comes to compensation plans?

Understanding the frequency and nature of changes to comp plans is important, but also key is how these changes are communicated. Are changes made to incentivize or penalize certain types of business, for example, is compensation tied to cross-selling goals or being on a team? How straightforward and understandable is the plan?

6. Do they invest in the development of next gen talent?

A firm that fosters the growth of their employees is one that is looking to build for the long-term. Is the firm attracting quality next gen talent? Do they have a strong training program? Do they help an advisor identify and compensate potential successors?

7. Does the firm have an open architecture platform and the ability to customize solutions?

Access to modern technology and a best-in-class platform helps to create greater efficiencies, facilitate growth and enhance the client experience. How diverse and robust are the capabilities? How easy is it to access industry-leading products and other resources? Are the offerings competitive with what’s available “on the Street?” How much flexibility is there in areas impacting the advisor? How easy is it to get exceptions? How much input do advisors have in the selection of resources?

8. Are there succession planning opportunities?

With the average age of financial advisors hovering in the late 50s, it’s vital an advisor understand the pathways to monetizing his or her life’s work. Is there a program for an advisor to retire-in-place and create a liquidity event? How is the business valued? Are there restrictions or obligations imposed on the successors?

9. What is the oversight environment like?

Many advisors express frustration with an environment in which they feel more like “one of many”— where all are managed to the “lowest common denominator” based on the size or makeup of the community. Does the oversight process feel cooperative or over-bearing and combative? How risk averse is the firm relative to others on the Street? Do the compliance mandates seem in line with the underlying regulatory concerns?

10. What is the stability of the advisor community?

A firm may have success attracting new hires but if it is also suffering meaningful losses, this needs to be explored. Is the firm growing by recruiting or acquisition? How significant is advisor attrition and why do advisors leave? What measures are taken to retain advisors, and do they reward loyalty or discourage departures?

12. Does it “feel right”?

Understanding culture is part art and part science. The art is in trusting your instincts. Do you like and respect the people representing the firm? Do individuals in different roles throughout the organization have shared values and a shared vision, and are they congruent with your own?

But the “science” lies in substantiating your impressions with concrete and specific information. Speak with peers who have gone through the process to understand their experiences. Ask them to share, candidly, what they should have asked, and what they would have done differently. Has the firm lived up to the advisor’s expectations and the firm’s promises?

It may seem difficult to “experience” culture in a socially distanced world, but it is achievable. While no one really knows what a post-Covid world will look like, we do expect that many aspects of a more virtual and digital experience will endure.  This approach of asking the right objective questions to assess culture, while necessary in a virtual environment, will likely remain relevant for the future.

Related: Four Paths To Consider When Advisors Become Divided on Their Futures